TOKYO (Kyodo) — Japan’s ruling Liberal Democratic Party on Wednesday proposed reducing the consumption tax rate on food and beverages from the current 8% to 1% starting April 2027, rather than cutting it to zero as pledged in the latest general election campaign.
The proposal was made by LDP tax policy chief Itsunori Onodera at a meeting of the cross-party national council on taxation and social security and will be included in an interim report on the issue to be compiled later this month.
It remains unclear whether the eight participating parties in the council, including Team Mirai, a group opposed to a consumption tax cut, and other opposition forces, can reach an agreement. Some opposition parties have not been invited to join the council.
In its campaign pledge for the House of Representatives election in February, the LDP, led by Prime Minister Sanae Takaichi, promised to cut the consumption tax on food products to zero for two years. Its junior coalition partner, the Japan Innovation Party, and many opposition parties made similar promises amid prolonged inflation.
The 1% consumption tax plan has been proposed because changing the tax rate to zero would require more time to adjust retailers’ cash register systems.
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According to sources close to the matter, the LDP and JIP have been considering using 600 billion yen ($3.7 billion) — a sum equivalent to a 1% consumption tax — as cash handouts to effectively keep their campaign pledge of a zero percent consumption tax.
Takaichi has indicated that she wants to move ahead with the tax reduction “as soon as possible” once the interim report is presented by the national council.
The Takaichi government hopes that related legislation lowering the consumption tax to 1% will be enacted by this fall to allow enough time for retailers to update their cash register systems, a process expected to take about six months.
However, with Japanese government bond yields surging to their highest levels in decades and the Japanese yen remaining weak, the tax cut plan could further raise concerns about the nation’s fiscal health, which is the worst among Group of Seven economies.